Creating a secondary annuity market: Citizens Advice response

This year Citizens Advice started delivering face-to-face Pension Wise guidance, and many clients who have visited our local offices have reported other issues that they would like help with.

As a charity we seek to empower people to help them make the best choices for their own lives, so we support the principles behind the pensions freedom and choice reforms which took effect this year.

We also understand the logic in extending existing freedoms to consumers who purchased an annuity before April 6th 2015.

There are a number of risks to consumers associated with existing and proposed pension freedoms, many of which Pension Wise and the system of risk warnings address. These include: succumbing to a pension scammer; unexpected tax and benefit consequences; and risks associated with investment and longevity.

But these new proposals could create specific additional risks for consumers who have already purchased an annuity.

One major distinction is that doing nothing will be the best option for many existing annuity holders, whereas new consumers starting the decumulation phase need to make an active choice.

Existing annuity holders face particular risks around means-tested benefits (MTBs), as those with incomes around the level of Pension Credit may immediately see a drop in income as a result of selling their annuity.

They are also at risk of getting poor value for money: buying a pension product for the second time round means consumers lose money twice through transaction costs.

There are other important distinctions between consumers who benefit from existing pension freedoms and those who would be eligible for these proposed new freedoms.

They are likely to be older, which may for some heighten vulnerability to scammers and make it harder to make complicated investment choices. They are also less likely to be able to take paid work if they run out of savings.

As well as risks to individuals, there are also broader public policy risks that a large new cohort of extra consumers may want to start selling in a new market.

An extra 5 million people eligible to sell their annuities represents a major potential increase in demand for a brand new market.